Fed up with battling traffic to get to work, Krystal Yee decided to trade the New Westminster townhouse she’s owned for five years for a Vancouver condo.

Armed with a maximum of $350,000 and a humble wish list, Yee scoped out studios and one-bedroom units within a 20-minute drive of her South Granville office.

“Nothing stood out,” said Yee, 33. “The locations were poor. The units were small and noisy. It seemed insane to pay more than what I was paying in New West for something I wasn’t in love with.”

After a few months of fruitless searching, Yee decided to put home ownership on the back burner and revert to renting.

“After I ran the numbers multiple, multiple times, I realized I could save significantly more money renting. It was shocking to me,” she said.

Not only did renting give her more options for places, put an extra $700 a month in her pocket and get her off the hook for repairs, maintenance, property taxes and the day-to-day responsibilities of ownership, it also gave her more options to live her life.

“If I had purchased in Vancouver, my future for the next many years is set (in stone),” said Yee, who is now happily living in a 685-square-foot, two-bedroom laneway house with her partner in her dream neighbourhood of Mount Pleasant for $1,650 a month.

“With renting, I can do whatever I want. It’s so freeing and valuable to me.”

Krystal Yee is happy to rent a laneway house in Mount Pleasant because it’s closer to work and less expensive than trying to buy in the superheated Vancouver real estate market. (Gerry Kahrmann, PNG)

JUDGMENT CALL

With Vancouver’s overheated real-estate market showing no signs of abating, many, like Yee, are foregoing home ownership — at least for now — because the numbers simply don’t add up.

One measure to determine whether it’s better to rent or to buy is a metric called the price-to-rent ratio, which takes the price of the property and divides it by its annual rent.

BMO ECONOMIST ROBERT KAVCIC (Postmedia News files)

Ratios in the 10-13 range indicate it’s better to buy than to rent, while a ratio in the 18-20 range is a sign in favour of renting over buying. Anything in between is a judgment call based on personal situation and local market conditions, according to Toronto-based BMO senior economist Robert Kavcic.

Based on the recent figures for apartments, Vancouver’s price-to-rent ratio is 55 in the east of the city and a staggering 72 in the west side. This calculation doesn’t take into account other costs of home ownership, such as property taxes or maintenance and repairs.

Kavcic examined two properties listed for sale last week in Vancouver — a downtown condo and a detached home in Point Grey — and compared them to rentals in the same building and neighbourhood, respectively.

“On both of those examples, an investor would be cash-flow negative by a wide margin, even with 20 per cent down,” he said.

In such scenarios, though, investors aren’t buying properties for the rent they pull in as much as they are for the potential price appreciation.

“You need some pretty significant price growth to make it worth it for you to buy,” said Kavcic.

Vancouver’s market is an abnormal beast, said Tom Davidoff, a professor at UBC’s Sauder School of Business. It’s a market extremely constrained in supply, where prices fuelled by rock-bottom interest rates and foreign investment have soared beyond local incomes.

The city’s eternal debate — to buy or to rent — has no easy answer, he said.

Purely from a numbers perspective, the cost of owning a home — including interest, taxes and maintenance — can be compared to how much you’d pay to rent a similar unit over a period of time, said Davidoff.

Sounds simple, but there are unknowns in these calculations that could skew the figures. Interest rates, currently at historic lows but expected to rise, are an example. Future rent prices also require some guessing.

“What’s hardest is anticipating where prices are going to go. Whether this is a bubble or not is very difficult to assess,” said Davidoff.

There’s no indication the market is cooling down. (CP files)

There is scant indication the market is cooling down.

The typical price for all types of homes in the region in January was $775,300, up about 21 per cent from a year before.

Over the past five years, prices for detached homes have jumped 39 per cent to an average of $1,123,900 in 2015.

Such price growth is unsustainable, experts say, and those who may be seduced by the get-rich-by-sitting-on-a-nest-egg scheme should note that history is an unreliable harbinger.

“If you bought a house 25 years ago, you would have got filthy, stinking rich, but just because you got lucky in the last 25 years doesn’t mean it’s going to happen again,” said Davidoff.

The math may favour renting, but this hasn’t stopped people from getting on the property ladder and holding on for dear life.

Residential property sales in Greater Vancouver rose almost 32 per cent last month compared to January 2015, according to the real estate board. In Metro Vancouver, owner households increased from 56 per cent in 1986 to 65 per cent in 2011.

‘RENTING FROM THE BANK’

Home ownership remains entrenched in the Canadian psyche. For many, it’s a rite of passage to adulthood, one that confers a measure of identity that other assets and investments like stocks and mutual funds do not.

But soaring property prices, which push home ownership further out of reach, may be giving renting new legitimacy.

Vancouver is a city with more renters than owners, an anomaly in the metro area, along with New Westminster. Only 48 per cent of households in Vancouver own, significantly lower than B.C.’s 70 per cent average.

Despite its growing popularity, renting still gets a bad rap. There’s a commonly held view that renters are just throwing their money away or building someone else’s equity. There’s also a societal expectation to own property at a certain age, although that age is getting later and later. But, many argue, the time has come to shed those views.

When Yee decided to revert to renting, many second-guessed her choice. On her personal finance blog, Give Me Back My Five Bucks, opinions were sharply divided.

“There is that stigma,” said Yee. “People would say, ‘Oh, you’re only renting because you can’t afford to own.’ I felt like I was taking a step back.”

There is a status that comes with home ownership, acknowledges Brad Presta, who rents in Vancouver’s Joyce-Collingwood area. “It’s like, I got my college degree, a car, I got married, got my career and then I buy a house. When you go to a dinner party and say you just bought your own home, you get that pat on the back.”

But Presta, 31, who works in sales, says there is wisdom in refusing to overextend yourself.

“If you’re making payments on your home — and don’t take this the wrong way — you don’t own it,” he said. “You’re renting from the bank rather than renting from the landlord.”

Presta, who is single, prefers taking the money he’s saving by renting and investing it elsewhere. He plans to buy a place only when he’s able to pay off his mortgage in five years.

Asked whether he’s worried about getting priced out of the market, Presta was matter-of-fact: “That’s just life.”

By the time he’s ready to put down roots, he’ll likely find himself in the suburbs or beyond. “There may be other areas not yet developed that could be better, so it’s hard to look that far ahead,” he said.

THE CANADIAN DREAM

Throughout most of the 20th century, renters have run the gamut of people in all socio-economic classes, said Andy Yan, an urban planner and acting director of Simon Fraser University’s City Program. Renting didn’t used to be just for those who couldn’t afford to buy.

REAL ESTATE EXPERT ANDY YAN (PNG files)

But since the Great Depression and the World Wars, governments in North America have promoted policies to support home ownership, said Yan. The American or Canadian dream of owning a home was used to stabilize the economy and ensure people have assets in their later years through the “forced” savings plan of a mortgage.

“There’s a notion in Canada and the U.S. that rental is a temporary state only. But for an increasing population in Metro Vancouver, it’s a housing reality,” Yan said, calling on government to recognize renting as a much-needed form of housing.

Up until the 1970s, there were federal tax incentives that supported rental stock, Yan pointed out.

“Part of an informed conversation is knowing not only what incentives would work toward supply, but knowing what kind of demands we want to support and what kind of demands we want to disincentivize.”

Scott Hannah, president of the Credit Counselling Society, said too many people are stretching themselves too tight in the panic to get into the market.

“For a lot of people, getting into the market today means they are going to be house rich, cash poor for a long period of time,” said Hannah.

Potential buyers have to be realistic and consider how home ownership would affect their lifestyle and other financial goals such as retirement, he added.

“People can say I’m prepared to live tight for a few years. But 25 years? That’s a sentence, not a plan,” said Hannah.

According to a BMO report released in December, the typical family has to shell out 60 per cent of gross income in Vancouver to make mortgage payments for a median-priced bungalow, up from 49 per cent of gross income a decade ago. Condos, in comparison, eat up a more modest 27 per cent of gross income.

Putting all your eggs in one very expensive and non-liquid item over the expense of other assets doesn’t make financial sense, say some experts.

Hannah says unprepared homeowners can end up more stressed and in debt than renters. Studies have also shown homeowners aren’t happier than renters. They have less leisure time and derive more pain than joy from their homes.

RENTAL INSECURITY

But, as anyone who has struggled to find a place to rent in Vancouver knows, renting isn’t a walk in the park either.

Vacancy rates in the region hover at less than one per cent and have been on a downward trajectory since 2012, affected in part by the skyrocketing popularity of short-term rental platform Airbnb.

HAPPY RENTER KRYSTAL YEE (Gerry Kahrmann, PNG)

Renting remains cheap relative to property values, but that doesn’t mean rentals are affordable. Rents are only expected to rise over time and there is already scarcity among certain types of rentals, such as three-bedroom units for families.

Then there’s what Yan calls security of tenure.

“Can you really rent for 10, 20, 30 years consistently in the place you are residing or somewhere similar?” asked Yan. “That’s a major challenge.”

In making the decision to buy or rent, a “complex calculus” is in play, said Yan. “It’s different for everybody, but for many, the questions are: Do you live in a situation where you’re overcrowded or you’re sprawling (in the suburbs)? Or are you over-indebted?”

At the risk of over-simplifying, the rent-or-buy debate comes down to your values, what you prioritize in life, and what you can afford.

For younger people who are relatively mobile, renting is a better option, said both Davidoff and Kavcic.

But if you plan to settle in Vancouver, whether you rent or buy, you can’t get away from the risk of the market.

“You can buy a place and be subject to the ups and downs of the market or rent and be subject to the risk of getting priced out,” said Davidoff.

For Yee, renting is the right decision for her right now.

“Renting is a lifestyle choice,” she said. “Home ownership is not a mark of adulthood. It’s a choice you make, too. Neither choice is better than the other.”

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